WB alternative energy

Technology Sector Strategy:
Global Warming Challenges —
Information Technology Solutions
NOVEMBER 2007
SEE DISCLOSURE APPENDIX OF THIS REPORT FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS
Information technology is likely to play an
increasing and critical role in harnessing select
"clean" energy sources
We expect IGBT semiconductors, key components
in power-conversion devices, to develop into a
large and important market
Given low penetration, rapid growth in wind and
solar is likely to continue; opportunities remain
for attractive investments

TECHNOLOGY SECTOR STRATEGY: GLOBAL WARMING CHALLENGES — INFORMATION
TECHNOLOGY SOLUTIONS
1
Overview
Among the several strategies available to reduce greenhouse gas emissions,
information technology is likely to play a critical role in harnessing select
"clean" energy sources (solar and wind), reducing transportation emissions
(i.e., hybrid electric propulsion systems), and increasing general electrical
efficiency (e.g., intelligent transportation systems, data-center power reduc-
tion, etc.).
One critical component for several of these solutions is the power-
conversion device — i.e., solar inverter, wind converter, hybrid vehicle
power module — which stabilizes and converts power from natural sources
and batteries into AC current. At present, no large company has greater
than 10% exposure, but select mid-/small-cap companies (e.g., Xantrex,
AMSC) appear well positioned.
The key components in high-voltage power-conversion devices are
IGBT (integrated-gate bipolar transistor) semiconductors, which we expect
will develop into a large and important market. At present, the renewable
energy segment is too small to impact results at exposed companies. How-
ever, we expect an accelerating contribution in 2009. Infineon, Mitsubishi
and Toyota are among the current leaders.
More broadly, efforts to improve overall electrical efficiency will create
many opportunities for traditional IT companies. In the near term, we see
large potential in intelligent transportation networks (GPS/traffic services)
and data-center efficiency (virtualization, outsourcing services). Longer
term, we see opportunities in appliance efficiency and home automation
(both positive for power semiconductors).
The hybrid vehicle market appears well positioned for explosive
growth given the maturity of technology and the large contribution of
automobiles to global greenhouse gas emissions (approximately 20%). Bat-
tery company investment options include large and established Japanese
joint ventures, and high-risk/high-reward battery chemistry companies in
the United States. Incumbent automobile semiconductor makers are likely
to benefit incrementally.
Given low penetration, rapid growth in wind and solar is likely to con-
tinue. IT's link to the solar market is through silicon in the panels, semicon-
ductors in the inverter and semiconductor capital-equipment companies.
Directionally, we prefer solar panel makers and suppliers over silicon refin-
ers given aggressive research to reduce silicon content and develop alterna-
tive materials. In the wind market, we prefer exposure to turbine
OEMs/system integrators over component suppliers, given the relatively
high level of vertical integration.
Richard Keiser +1-212-756-4241 richard.keiser@bernstein.com
Vadim Zlotnikov +1-212-756-4663 vadim.zlotnikov@bernstein.com
Denis Smirnov +1-212-969-6110 denis.smirnov@bernstein.com
November 19, 2007
Many individuals contributed to this report; we are particularly grateful to Scott
Geels.

2 TECHNOLOGY SECTOR STRATEGY: GLOBAL WARMING CHALLENGES — INFORMATION

3
Table of Contents
Analysis Introduction and Key Conclusions 5
Greenhouse Gas Basics and the Intersection With Information
Technology 8
IT Investment Areas and Key Conclusions 10
Solar Power: Prefer Panel Makers or Suppliers Over Silicon Refiners 16
Wind Power: Large-Turbine OEMs/Systems Integrators Preferred
Over Suppliers 21
Hybrid Vehicles: Sector Poised for Explosive Growth 24
General "System Efficiency" Is Likely to Create Many Opportunities
for IT Products and Companies 30
Intelligent Transportation Systems 31
"Home Automation" and Energy Control 36
Additional Opportunities in Data-Center Energy Efficiency, HVDC
Power Transmission and Superconductors 42

5
Analysis Introduction and
Key Conclusions
Over the last 150 years, annual CO2 emissions have risen from approxi-
mately 50 million metric tons to approximately 28 billion metric tons (see
Exhibit 1). Over the last 10,000 years, CO2 levels in the atmosphere have
risen from approximately 260 parts per million to 375 parts per million (see
Exhibit 2). Total CO2 levels in the atmosphere are certain to rise for the
foreseeable future given: (a) the world's current reliance on fossil fuels for
two-thirds of global electricity generation; (b) the low initial cost of fossil
fuel energy production relative to alternative energy sources; and (c) the
time needed to shift electricity production to non-greenhouse gas (GHG)
emitting sources, should such a shift be desired or mandated (see Exhibit 3).
Exhibit 1 Annual CO2 Emissions Have Increased
Dramatically Since the Beginning of the
Industrial Revolution
Exhibit 2 Concentration of CO2 in the Atmosphere
Has Similarly Increased
Annual Global CO2 Emissions
from Fossil Fuels (1850-2004)
0
5
10
15
20
25
30
1850
1860
1870
1880
1890
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
BillionMetricTonsofCO2
Global Atmospheric
Concentration of CO2
250
275
300
325
350
375
400
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
Time (Years Before 2005 A.D.)
PartsperMillion
Source: U.S. Department of Energy. Source: United Nations Intergovernmental Panel on Climate Change
(IPCC).

Exhibit 3 Fossil Fuels Are Used to Generate Approximately
Two-Thirds of Global Electricity
Electricity Generation by Fuel, 2005 for U.S. and 2004 for World (billion kilowatt-hours)
Amount Share of Total CO2 Est. Generation
U.S. World U.S. World Emitting? Cost per mWh Notes
Coal 2,015 6,723 50.1% 40.1% Yes $40-$50 Least expensive fuel and abundant
Natural Gas 752 3,231 18.7 19.3 Yes 70-85 Recent fuel cost increase
Hydropower 265 2,889 6.6 17.2 No 60-70 Only viable in select locations
Nuclear 780 2,619 19.4 15.6 No 50-70 Produces nuclear waste
Petroleum 122 937 3.0 5.6 Yes 80-100 Recent fuel cost increase
Biomass 38 150 0.9 0.9 Yes1 70-80 Only viable in proximity to fuel source
Wind 15 82 0.4 0.5 No 60-70 Least expensive renewable source
Municipal Waste 23 77 0.6 0.5 Yes 70-80 Reduces landfill volume
Geothermal 15 56 0.4 0.3 No 70-80 Only viable in select locations
Solar Thermal 1 2 0.0 0.0 No 80-120 Emerging large-scale desert projects
Solar Photovoltaic 0 1 0.0 0.0 No 200-300 High cost, silicon shortage
Total 4,026 16,767 100% 100%
1 Carbon-neutral over the cycle length.
Source: EIA, IEA, industry sources and Bernstein estimates and analysis.
Most climate scientists associate rising CO2 levels with rising tempera-
tures, and the potential for world-scale problems such as the melting of ice
caps, a rise in global sea levels, massive population displacements, ocean
acidification and widespread species extinctions. Without debating the like-
lihood or timing of such events, this analysis attempts to identify the areas
of technology most likely to benefit from spending directed toward reduc-
ing GHG emissions. Our focus is explicitly information technology; how-
ever, given the nature and scope of these issues, we have deliberately taken
a broader view that extends beyond traditional IT. Extensive literature and
debate exists on global warming, its pace and its causes. Our primary goal
is not to add to that literature, but to provide investors with a framework
for thinking about the intersection of GHG emissions, alternative energy
and potential IT solutions. Our second goal is to direct investors to sectors
which we believe have the greatest potential, so that more stock-specific re-
search can be done. The breadth of the topic is vast; accordingly, this analy-
sis should be used as a starting point for further research.
In completing the analysis our approach was to identify the global
drivers of greenhouse gas emissions, consider broad strategies for reducing
those emissions, determine which of those strategies had an intersection
with information technology, quantify the respective IT contribution, and
identify companies with exposure. As we did, some readers may need to
adjust to the concepts of energy output per capacity, energy cost per capac-
ity, IT content per capacity, etc., measured usually on a per-kilowatt or per-
megawatt basis. In the energy sector, costs are primarily determined by the
size of the facility. Accordingly, the question "how much does a wind facil-
ity cost?" can only be meaningfully considered given an output capacity
target. We have included "typical" facility costs at a set capacity to help
bridge this gap wherever possible.
Valuation Methodology The Bernstein Technology Strategy Group utilizes a broad range of valua-
tion methodologies in forming investment recommendations, ranging from
concurrent measures based on cash flows and earnings (enterprise
value/earnings before depreciation, amortization, interest and taxes, enter-
prise value/free cash flow, price/earnings), as well as more "normalized"
metrics (such as price/book, dividend discount model, price/sales,
price/normalized earnings, LBO value). The specific weight (or impor-

7
tance) of each factor depends on the sector, as well as capitalization of the
stocks being evaluated (e.g., small-cap versus large-cap stocks).
The stock-selection approaches also vary depending on the style of the in-
vestor (e.g., core versus growth), as well as short-term versus long-term in-
vestment horizon. In all of our models, we also consider income-producing or
capital-use characteristics such as dividend and total yield, as well as the level
of capital spending, profitability and accruals.
Finally, we include some technical measures such as price momentum
(high is good), trading volume (abnormally high is bad), and level of institu-
tional ownership (high is good). The specific metric used depends on the na-
ture of the industry and the historical efficacy in predicting returns. Investors
looking to get further detail on individual models that we use should obtain
the following Quantitative Research: October 25, 2004, "Technology Sector Strat-
egy: Update of Quantitative Stock Selection Model".
Risks The performance of technology companies is generally very sensitive to
changes in the macro- and microeconomic environments. Examples of rele-
vant dynamics include, but are not limited to, changes to capital spending
plans, technology obsolescence, inventory fluctuations, and pricing declines.
Changes in the perceived status of the above factors can take place abruptly.
Perceived or real differences from the assumptions in our research could cause
meaningful deviations from expected results and failure of the proposed
strategies.
Investment Conclusion Global warming, greenhouse gas emissions and clean energy are likely to con-
tinue to attract attention as scientific evidence of the potential risks mounts,
and the public and policymakers worldwide take further action. Many com-
panies in the most obvious investment areas — e.g., solar and wind power —
have already appreciated significantly over the last two years. However, given
that solar and wind combined still account for only 1-2% of global electricity
generation, efforts to increase this to any meaningful level will drive enor-
mous and sustained future spending. Accordingly, the multiples of companies
with exposure are likely to remain elevated, and investors similarly need to
take a longer-term view.
The three areas where information technology is likely to play the largest
role in reducing greenhouse gas emissions are in harnessing natural energy
sources (wind and solar), reducing transportation emissions (electric/hybrid
electric vehicles) and through technologies that improve overall electrical effi-
ciency (e.g., intelligent transportation systems, data-center power reduction,
etc). Attractive investment options remain in many of these areas and we are
adding a small position to Sunpower Corp. (SPWR) to the portfolio.
One critical component of several clean-energy solutions is the power-
conversion device, which stabilizes and converts power from natural sources
and batteries into AC current. Inside the power-conversion device are special-
ized IGBT semiconductors. We expect rapid growth in both of these areas, but
the timing of the investment opportunity differs. In the near term, smaller con-
verter/inverter companies with high exposure to solar/wind are likely to see
accelerating growth. Accordingly, we are adding a small position in Xantrex
(TSE:XTX) to the portfolio. In the medium/longer term, we expect the renew-
ables segment to drive accelerating results for IGBT semiconductor makers
beginning in 2009; Infineon appears well positioned. Key conclusions of the
analysis and a guide to exhibits with company exposure are summarized in
Exhibit 11. The other change to the portfolio this month is removing SAP.

Greenhouse Gas Basics and the
Intersection With Information
Technology
The greenhouse effect refers to the role the atmosphere plays in trapping
heat around the earth. There are two primary sources of heat: short-wave
radiation from the sun and long-wave (thermal) radiation from the earth's
core.1 Approximately one-third of the sun's short-wave radiation is de-
flected back into space by the atmosphere. The balance enters the atmos-
phere and warms and reflects off the planet's surface. In addition, long-
wave radiation from the earth's core rises up and a portion of that energy
also leaves the atmosphere. Certain trace gases permit short-wave radiation
to exit the atmosphere but deflect long-wave radiation back to earth. These
gases are called greenhouse gases (GHGs). Globally, the three primary
GHGs are carbon dioxide (CO2), methane (CH4) and nitrous oxide (N2O).
As of 2006, the United States remained the world's largest emitter of these
gases, releasing over seven billion tons of CO2 equivalents into the atmos-
phere and accounting for 20% of global emissions. China is expected to
overtake the United States as the largest emitter in either 2007 or 2008.
Europe (EU25) accounts for approximately 14% of global GHG emissions.
The four primary drivers of worldwide GHG emissions are: (1) com-
bustion of fossil fuels to produce electricity; (2) combustion of gasoline for
transportation; (3) emissions resulting from industrial processes; and (4)
commercial and residential heating and cooking (see Exhibit 4).
There are essentially five broad strategies for reducing GHG emissions:
(1) switch to non-GHG-emitting electricity sources (e.g., solar, wind, hy-
dropower, nuclear); (2) switch from traditional internal combustion engines
in cars and trucks to hybrid electric or other "clean" propulsion technologies
(e.g., all-electric vehicles, fuel cells); (3) use electric, thermal or non-GHG
energy sources for residential and commercial heating and cooking; (4) in-
crease general energy efficiency (thereby reducing total energy demand);
and (5) capture, process and sequester "unavoidable" GHG emissions be-
fore they disperse into the upper atmosphere. Some of these ap-
proaches/solutions involve information technology and some do not. For
example, carbon capture and sequestration is primarily an industrial proc-
ess: CO2 emissions are compressed and pumped via pipeline into a large-
scale storage facility (for further research on carbon capture see our "Bern-
stein Energy & Utilities: How Inconvenient? The Impact of CO2 on Energy
and Utility Stocks," Research Call of June 12, 2007). Other solutions, such as
photovoltaic solar panels, have high IT content: silicon in the solar panels,
semiconductors in the power-conversion devices, and the role of semicon-
ductor capital equipment makers in producing solar-related equipment.
Overall, we see the greatest link between GHG emissions and information
technology investment in solar photovoltaic panels, wind power, hybrid
cars and solutions that raise general system efficiency, such as intelligent
transportation networks (see Exhibit 5). In addition, we expect many new
opportunities for traditional IT companies to emerge. Improving electrical
1 Explanation of greenhouse gas basics taken from Climate Change, edited by DiMento and Doughman, MIT Press, 2007.

9
efficiency in general implies a greater level of control, and greater control
generally implies higher electronic (semiconductor) and software content.
Exhibit 4 Combustion to Produce Electricity and Power Automobiles Are the
Two Largest Sources of GHG Emissions
Sources of Greenhouse Gas Emissions (2004 for U.S., 2000 for World)
Million Tons of CO2 Equivalent
Share of GHGs
Source Driver Description/Example U.S. World
CO2 Combustion to produce electricity Burning coal, natural gas and petroleum 32% 21%
Combustion for transportation Burning fuel in internal combustion engines 26 17
Industrial processes A byproduct of industrial processes 13 17 60%+
Commercial & residential combustion Heating and cooking 8 6
Cement manufacturing A byproduct of production 1 5
Iron and steel production A byproduct of production 1 4
Other - 3 3
85% 72%
CH4 Enteric fermentation Released from ruminant animals (e.g., cows) 2% 6%
Landfills Bacteria decomposition in landfills 2 2
Natural gas systems Escaped gas during drilling/inefficiencies 2 2
Coal mining Release of trapped gas during coal mining 1 2
Other - 2 4
8% 17%
N2O Agricultural soil management - 4% 7%
Other - 2 2
5% 10%
HFCs, PFCs and SF6 - - 2% 1%
Percentage Total (Excluding Land Use) 100% 100%
Total Emissions (Excluding Land Use) 7,074 34,156
Net CO2 Impact of Land Use Change (780) 7,599
Net Total Emissions 6,294 41,755
Source: IPCC, EPA and Bernstein analysis
Exhibit 5 Information Technology Is Likely to Play the Greatest Role in Solar, Wind,
Hybrid Cars and General Efficiency
Summary of Key Five Strategies for Reducing GHG Emissions and Respective IT Intensity
No. Approach IT Intensity
Technologies/Solutions
With High IT Content
Technologies/Solutions
With Low IT Content
1 Produce electricity with non-GHG-emitting
energy sources
Solar photovoltaic, wind Nuclear, hydropower, biomass,
solar thermal
2 Switch from GHG-emitting vehicles/internal
combustion engine
Hybrid-electric vehicles,
All-electric vehicles
Ethanol, fuel cells
3 Switch residential and commercial
heating/cooking to electric and/or thermal
processes
- More efficient building design,
improved home insulation,
electric stoves
4 Increase system and electrical efficiency Intelligent transportation
networks, higher electrical
efficiency in appliances,
data-center power efficiency,
superconductors, etc.
Florescent lightbulbs, reduce
packaging/waste, increase
recycling
5 Capture "unavoidable" GHG emissions - Carbon capture, carbon
removal
Source: Bernstein estimates and analysis.

IT Investment Areas and
Key Conclusions
Among the solutions that intersect with information technology, IT content
varies significantly. For example, the two primary components of a photo-
voltaic solar system are the solar panels which convert energy from the sun
into DC electricity, and solar inverters, which convert the DC electricity
from the panels into AC electricity for broader use. Most commercially
available solar panels have high silicon content, and the solar inverter has
high semiconductor content. Considering the entire panel as an IT-related
component, these costs account for 75-80% of a "typical" commercial solar
facility (or $5 million per megawatt; see Exhibit 6). In contrast, the principal
IT components in a wind system are the semiconductors in the wind con-
verter. IT content in a "typical" wind farm accounts for 3-5% of the total
cost, or $60,000-$70,000 per megawatt. (A full description of each system's
functionality is given in the subsequent sections). The principal incremental
components for a hybrid electric vehicle are the battery, the electric motor,
the generator and power module. For a "typical" full hybrid, these costs add
approximately $3,500 to the cost of the automobile. Of these costs, including
the battery, approximately 60% are IT-related.
One key conclusion of our analysis, visible in Exhibit 6, is that power-
conversion devices in general — solar inverters, wind converters, hybrid-
vehicle power modules — and IGBT (integrated-gate bipolar transistor)
semiconductors in particular, are likely to play a large and critical role in al-
ternative energy solutions. The increasing role for power-conversion de-
rives from the need to integrate power produced from natural sources (e.g.,
wind, sun, waves) and batteries into the existing AC grid. Fossil-fuel and
nuclear energy sources are controlled so that the energy they generate has
few fluctuations of amplitude and frequency. These sources have been de-
signed to create "stable" AC power. In contrast, solar photovoltaic cells con-
vert the sun's energy into DC power, which needs to then be converted to
AC to power appliances. Similarly, hybrid batteries (NiMH or Li-ion) store
DC power that needs to be converted to AC to drive the AC motor. Wind
systems generate AC power, but because wind speed and consistency vary,
this power is unstable and needs to be converted first to DC, and then back
to AC before use in the broader grid.
The semiconductor device that is best suited for high-voltage power
conversion is an integrated-gate bipolar transistor (IGBT), which has good
conduction and fast switching capabilities (at lower voltages metal oxide
semiconductor field effect transistor [MOSFETs] can also be used). One use-
ful analogy is to think of the role of a power-conversion device as a switch
in an IP network: the power-conversion device moves energy between fre-
quencies — DC from a solar panel to AC for an appliance, DC from a bat-
tery to AC for a motor — just as a Cisco switch routes IP traffic to different
nodes. The IGBT semiconductor inside the power-conversion device per-
forms this energy conversion, similar to the switch microprocessor (e.g., a
chipset from PMC-Sierra) inside the Cisco device.2
2 This analogy adapted from one offered by Xantrex.

11
Exhibit 6 IT Content Varies by Solution; Including Silicon, Content in Solar Panels Is
Highest; Hybrid Vehicle IT Content Similarly High
Summary of IT-Related Opportunities by Application
Solution Principal IT-Related Components IT-Related Content Pct. of "System" Cost
Alternative Energy Solutions
Photovoltaic Solar Panels • Photovoltaic panels — convert sun's
energy into DC electricity
• Inverter/power semiconductors (IGBT,
MOSFET) — convert DC to AC electricity
$5-$6 million per mW 75-80% of solar installation
Wind Power Systems • Wind converter/power semiconductors
(IGBT, diodes) — convert AC electricity
to DC then back to AC to conform to grid
specifications
• Sensors — monitor ambient conditions
(wind, temperature)
• MCUs and other semiconductors —
monitor and control the system
$60,000-$70,000 per mW 3-5% of wind farm
Transportation Solutions
Hybrid Electric Vehicles • NiMH or Li-Ion Battery — powers
electric motor and stores electricity
• Power module/IGBTs — convert DC
to AC, control power flow
• MCUs and other semiconductors —
monitor and control the system
$1,800-$2,400 per vehicle 60-70% of incremental
hybrid cost; 10-15% of
automobile
Example System and Electrical Efficiency Solutions
Intelligent Transportation Networks • GPS chipsets — determine position
• Mapping data — collect road
information
• Navigation devices — PNDs, in-dash,
phones
• Sensors — monitor traffic
$2-$6 per cell phone chipset
$200-$500 per PND
80%+
Home Automation Products • Control units — monitor and control
other devices
• Sensors — monitor ambient conditions
(temperature, light)
$1,000 per home 20% of home system
Data-Center Energy Efficiency • Virtualization — reduces number of
physical servers
• Power supply controls/manipulates
electrical power
• Hosting services — increases efficiency
through shared resources
TBD 80%+
HVDC Transmission • Semiconductors (thyristors) — convert
AC/DC and DC/AC
$5-15 million per project 0.5% of transmission project
Superconductors • HTS wire — carries electricity
without losses
$3 million per mile TBD
Source: Infineon, AMSC, Xantrex, Vestas, Repower, Inrix, Smart Home Designs, ABB, industry sources and Bernstein estimates and analysis.
Power-conversion costs and IGBT content vary by application. For ex-
ample, a typical residential solar system may consist of only a few panels,
generate 3-4 kW of electricity, and have an inverter costing $3,000-$4,000
(see Exhibit 7). In this system, the IGBT (and/or MOSFET) content may be
only $40. In a large-scale wind system, there is an industrial wind converter
inside the turbine; the IGBT content in these units may be $10,000 per tur-
bine. Accordingly, on a per-megawatt basis IGBT cost is approximately 2.5
times as large in smaller systems (though lower-cost products are subject to
more commoditization).

Exhibit 7 IGBT Semiconductor Content Varies by Application
IGBT Content by System Type
Application Capacity Power Device Device Cost Est. IBGT Cost
Est. IBGT Cost
per kW
Solar PV
Large Scale 5 mW Inverter $1,200,000 $20,000 $4
Residential 4 kW Inverter 3,000 401 10
Wind Turbine 2 mW Converter 100,000 10,000 5
Hybrid Car 50 kW Power module 3,500 560 11
Clothes Washer 0.4 kW Power module 300 5 13
1 Includes some MOSFET content.
Source: Xantrex, Infineon, industry sources and Bernstein estimates and analysis.
In terms of investment opportunities, we are positive on both power-
conversion devices (e.g., inverters/converters) and IGBT semiconductors,
though the opportunities have different time horizons. With respect to the
inverter market, there are essentially two types of companies, large-scale
industrial conglomerates, e.g., ABB, for which the inverter market repre-
sents a very small portion of revenues, and smaller companies that are
more highly leveraged. In the near term, smaller companies are likely to see
strong/accelerating growth driven specifically by alternative energy.
Longer term, their survival is dependent on maintaining a competitive
technology edge relative to larger peers and avoiding commoditization. Di-
rectionally, we are biased to inverter companies with greater solar exposure
given that the wind inverter market is more highly concentrated. Also, di-
rectionally, we prefer companies with both residential and commercial so-
lar exposure, given that inverter content is relatively higher in smaller-scale
systems. Among the small-cap companies, Xantrex (TSE:XTX), for example,
appears well positioned (see Exhibit 8).
Exhibit 8 Power-Conversion Device Makers a Mix of Large Industrial Conglomerates
and Small-Cap Companies; We Prefer Exposure to Solar Over Wind; Xantrex
Appears Well Positioned
Summary of Solar Inverter and Wind Converter Companies
Solar Market Cap Est. Share of
Ticker Company Residential Commercial Wind Country ($ billion) P/FE P/S 2006 Sales
GE General Electric Co. Yes Yes Yes United States $428.0 - 2.6x < 5%
SIE-DE Siemens AG Yes Yes - Germany 126.4 15.2x 1.1 < 5
ABBN-CH ABB Ltd. - - Yes Switzerland 58.4 20.2 2.1 < 5
ALO-FR Alstom S.A. - - Yes France 29.2 23.1 1.4 < 5
6753 Sharp Corp. Yes Yes - Japan 19.1 19.1 0.7 < 5
WGOV Woodward Governor Co. - - Yes United States 2.3 22.8 2.3 5-10
AMSC American Superconductor - - Yes United States 0.9 - 14.2 40-60
TSE:XTX Xantrex Technology Inc. Yes Yes Yes Canada 0.4 26.7 1.7 40-45
MAG MagneTek Inc. - - Yes United States 0.2 16.6 1.4 5-10
SATC SatCon Technology Corp. - Yes - United States 0.0 1.2 25-35
Source: Xantrex, FactSet, corporate reports and Bernstein analysis.
In the IGBT market, the established players are all large, discrete power-
semiconductor manufacturers. In this market, we believe technology advan-
tage is more stable, but at present, alternative-energy IGBTs is too small a
market to impact results. For example, Infineon expects to sell IGBTs into the
hybrid auto market but does not expect the first car to be for sale before
2H:08. We believe this is a medium- to longer-term attractive investment area
as alternative energy drives accelerating results, likely in 2009. Among the
large-cap companies, Infineon appears well positioned (see Exhibit 9).

13
Exhibit 9 Large Discrete Semiconductor Makers Lead In IGBTs: Infineon and
Mitsubishi Appear Well Positioned
Summary of IGBT Companies
Ticker Company Country
Market Cap
($ billion) P/FE P/S
6503 Mitsubishi Electric Corp. Japan $26.8 19.3x 0.8x
STM-FR STMicroelectronics N.V. France 14.9 17.6 1.4
IFX-DE Infineon Technologies AG Germany 11.8 22.4 1.0
ONNN ON Semiconductor Corp. United States 3.6 12.6 2.4
IRF International Rectifier Corp. United States 2.6 14.5 2.0
FCS Fairchild Semiconductor United States 2.3 16.2 1.4
Private Semikron AG Germany - - -
Note: Toyota manufactures its own IGBTs for use in its hybrid cars.
Source: Infineon, FactSet, corporate reports and Bernstein analysis.
In general, if there is a push to meaningfully boost "clean" energy
sources, the magnitude of spending will be enormous. At present, the com-
bined output from solar and wind power is only 1% of global electricity
generation. Growing that to 5% over the next 10 years could require over a
trillion dollars in new spending, of which $100 billion would be IT-related
(even excluding silicon in the panels; see Exhibit 10). Similarly, small pene-
tration of hybrid cars would drive $10-$20 billion in battery and semicon-
ductor spending by 2016. The prospect of gains anywhere near this order of
magnitude is likely to keep multiples across the sector high. Accordingly,
we encourage investors to similarly take a longer-term view.
Exhibit 10 Given Low Penetration, Spending to Increase "Clean" Energy's Contribution
to Global Demand Would Be Enormous
Cumulative 10-Year Spending Under Different 2016 Penetration Rate Assumptions ($ billion)
Est. Current 10-Year Spending at Different Penetration Rates
Application Penetration Rate 0.5% 1% 2% 3% 4% 5% 10%
Total Spending per Technology
Hybrid Cars 0.50% - $9 $13 $16 $19 $22 $34
Solar Photovoltaic 0.01 $138 269 515 752 984 1,213 2,327
Wind Power 1.00 - - 51 94 135 174 356
IT-Related Spending per Technology
Hybrid Cars 0.50% - $5 $8 $9 $11 $13 $20
Solar PV Incl. Panels 0.01 $109 213 409 597 780 962 1,845
Solar PV Excl. Panels 0.01 13 25 49 71 93 114 219
Wind Power 1.00 - - 2 4 6 8 15
Assumptions
Electricity Generation CAGR 3%
Auto Production CAGR 4
Annual Cost Change (15)
Note: Hybrid car spending is for incremental HEV versus conventional car costs.
In addition to the opportunities in the power-conversion and power-
semiconductor markets, the key conclusions of the analysis are as follows:
(1) We expect strong growth for solar panel manufacturers, solar in-
verter manufacturers and panel equipment makers (e.g., AMAT) to
continue. Increasing silicon capacity, aggressive research efforts to
reduce silicon content in panels, and efforts to develop alternative
photovoltaic materials are likely a long-term negative for silicon re-
finers (e.g., Wacker, REC, WFR). We expect accelerating growth in
smaller commercial and residential systems as photovoltaic materi-

als are incorporated more directly into building components (e.g.,
roofs). Relatively higher inverter cost in smaller residential systems
is likely to benefit leveraged inverter makers (e.g., Xantrex).
(2) We expect strong growth for wind turbine manufacturers to con-
tinue. Higher vertical integration in the wind-power supply chain,
relative to solar, favors OEMs/integrators (e.g., Vestas, Gamesa,
Suzlon) over suppliers.
(3) Hybrid vehicles appear near the cusp of explosive growth given the
maturity of the technology and the large contribution of internal
combustion engines to global CO2 emissions (approximately 20%).
Japanese battery makers are well positioned, but no large pure-play
opportunities exits. Select small- and micro-cap opportunities exist
in the United States, with high risk/high reward. Power semicon-
ductor/IGBT makers (IFX, Mitsubishi, Toyota) are likely to benefit
significantly, likely beginning in 2009.
(4) The integration of GPS and radio technologies is likely to accelerate
both in PNDs and handsets. Traffic services are the next "killer" ap-
plication. Increasing sector consolidation is limiting investment op-
portunities. TomTom is advantaged over Garmin longer term due
to map control/access and likely greater ability to de-
velop/integrate next-generation services. SiRF Technology Hold-
ings represents continued balance of short-term opportunities (ac-
celerating handset GPS penetration) and medium-/longer-term
risks (erosion of technology lead, pricing).
(5) Technologies that improve data-center power efficiency are a viable
near-term investment opportunity and more analysis is needed. Re-
cent industry efforts, e.g., Green Grid initiative, suggest momentum
is building. Technologies/companies that improve data-center
power efficiency include virtualization (VMware) and data-center
outsourcing (Equinix; see Exhibit 11).

15
Exhibit 11 Key Conclusions of the Analysis and Exhibits
Summary of IT-Related Opportunities by Application
Investment Area Conclusions Key Exhibits
Power-Conversion Devices Likely to play a large and critical role in numerous alternative energy solutions:
solar and wind power, hybrid cars, appliance efficiency, etc. Large industrial
companies with exposure (e.g., ABB) currently un-investable, as revenue
percentages are too low. Select small-/mid-cap opportunities exist.
Outperformance and survival of smaller companies dependent on maintaining
technology advantage. Exposure to solar market preferred over wind, given
large incumbents and higher vertical integration in wind. Within the solar
market, exposure to both commercial and residential preferred given fast growth
in commercial, large potential in residential and higher share of system content
in smaller systems. Xantrex appears well positioned
6, 7, 8
Power Semiconductors/IGBTs IGBTs are the critical component of power-conversion devices (above), with
exposure to the same markets: solar and wind power, hybrid cars, appliance
efficiency, etc. At present the renewable segment of the market remains small
and growth rates are too slow to drive accelerating results. Pace of residential
solar and hybrid car adoption critical to investment timing. Expect accelerating
results in 2009. IFX, Mitsubishi and Toyota (hybrid automobiles only) appear
well positioned.
6, 7, 9, 30
Alternative Energy Solutions
Photovoltaic Solar Panels Expect strong growth for panel manufacturers, inverter manufacturers (see power
conversion above), and panel equipment makers (e.g., AMAT) to continue.
Increasing silicon capacity, aggressive research efforts to reduce silicon content
in panels, and efforts to develop alternative photovoltaic materials are likely a
long-term negative for silicon refiners. Expect accelerating growth in residential
systems as photovoltaic materials are incorporated more directly into building
components, e.g., roofs. Relatively higher inverter and semiconductor content in
small residential systems.
14, 15, 17
Wind Power Systems Expect strong growth for turbine manufacturers to continue. Relatively higher
vertical integration in the supply chain, relative to solar, favors OEMs/
integrators over suppliers. Possible adoption of related technologies to future
hydro-/wave systems.
19, 20, 22, 23
Transportation Solutions
Hybrid Electric Vehicles Large potential for explosive growth given contribution of automobile combustion
engines to global CO2 emissions (20%) and the maturity of the technology.
Japanese battery makers well positioned, but no large pure-play opportunities
(yet?). Select small- and micro-cap opportunities exist with high risk/high
reward. Power semiconductor/IGBT makers (Infineon, Mitsubishi, Toyota)
to benefit significantly, likely beginning in 2009
29, 30, 32, 33
System and Electrical Efficiency Solutions
Intelligent Transportation Networks Integration of GPS and radio technologies to accelerate, both in PNDs and
handsets. Traffic services the next "killer" application. Increasing sector
consolidation limiting investment opportunities. TomTom advantaged over
Garmin longer term due to map control/access and likely greater ability to
develop/integrate next-generation services. SiRF continues balance of
short-term opportunities (accelerating handset GPS penetration ) and
medium-/longer-term risks (erosion of technology lead, pricing).
34, 35, 37
Home Automation and Appliance Efficiency Large opportunity but difficult to capture. Regulations and standards for appliance
makers necessary in the near term to drive spending. Medium-/long-term
catalyst is energy price/consumption transparency (i.e., so consumers know
how much energy appliances use and how much that energy costs) and variable
pricing by energy companies (i.e., price changes depending on usage times/
overall demand).
41, 43, 45
Data-Center Energy Efficiency Viable nearer-term investment opportunity and more analysis needed. Recent
industry efforts, e.g., Green Grid initiative, suggest momentum is building.
Technologies/services that improve data-center power efficiency include
virtualization (VMware) and data-center outsourcing (Equinix)
46, 47, 48
HVDC Transmission Expect to see select projects involving HVDC transmission. Semiconductor content
is high but market too small to drive a change in growth rates/profitability for
suppliers.
46, 49
Superconducting Wire Niche application with uncertain development timing. Industry leader AMSC
also has exposure to wind system converters and warrants further analysis.
46, 49
Source: Bernstein analysis.

Solar Power: Strong Growth to
Continue
Directionally We Prefer
Panel and Inverter Makers
Over Silicon Refiners;
Semiconductor Content
Proportionally Higher in
Smaller-Scale Systems
Solar power refers to the conversion of the sun's short-wave radiation into
energy. Despite the high initial cost of solar power production, there re-
mains intense interest in this technology because of the immense potential:
in a single hour, more solar energy reaches the surface of the Earth than is
provided by all of the fossil energy consumed globally in one year.3 The
principal solar energy companies are not an undiscovered investment area:
the median two-year return for public companies is nearly +50%. However,
given that solar energy still represents less than 0.5% of global electricity
supply, the potential for growth is enormous.
There are two main approaches to capturing solar energy: through
photovoltaic cells distributed across a solar panel (solar PV), or by concen-
trating the sun's rays, usually with mirrors, on a liquid to produce steam,
which then turns a generator (solar thermal). As shown previously in Ex-
hibit 5, solar thermal energy has essentially no IT component. Solar photo-
voltaic's link to IT is through the silicon used in solar cells, semiconductors
used in power conversion, and semiconductor equipment providers who
produce equipment to make solar panels.
A typical solar photovoltaic (solar PV) system consists of three key
components: (1) the solar panels themselves, which contain embedded solar
cells that convert the sun's energy into DC power; (2) inverters, which use
semiconductors to convert the DC power generated by the panel into AC
electricity; and (3) the associated mounting hardware and controls (see Ex-
hibit 12). In some systems, solar panels are installed on mechanical trackers
that enable the solar panels to follow the sun's motion across the sky,
thereby increasing energy production/efficiency. In large-scale systems, a
control station or substation is also necessary for monitoring and integra-
tion into the larger power grid.
The combination of scientific interest and government subsidies has led
to the construction of several large solar panel plants, primarily in Europe
(see Exhibit 13). Recently completed facilities have peak capacities between
10 and 12 megawatts, though larger facilities are planned. A "typical"
10 mW solar facility will generate 10,000-14,000 megawatt-hours of electric-
ity (the equivalent annual demand of 1,200 U.S. households), and have
capital costs of $50-$80 million. In general, solar PV system cost is highly
dependent on energy output. For larger systems, solar panel cost is ap-
proximately 75% of the installed cost ($4.5 million per megawatt), inverters
represent 5% ($0.3 million/mW), and the rack and system control costs rep-
resent approximately 10% ($0.6 million/mW; see Exhibit 14). In smaller
home systems, panels and inverters represent a higher percentage of total
cost.
3 Source: MIT Energy Initiative.

17
Exhibit 12 Solar Panels and Inverters Are the Key Components of a
Solar Photovoltaic System
Solar PV System Components
1. Solar PV Panel (Based on Sunpower 315)
Function Convert sunlight into DC electricity
Solar Cells
– Number 96
– Material Monocrystalline silicon
Total Silicon Content (kg) 2.2
Panel Dimensions
Length x Width (ft) 5.1 x 3.4
Weight (kg) 24
Material Aluminum alloy/glass
2. Inverter
Function Convert DC power into AC electricity
3. System Hardware
Rack Holds panels at appropriate angle
Wiring Connects panels to grid
SCADA1 Unit Monitors the facility
4. Trackers (Optional)
Function Rotates panels to follow sun's path
Components Optical sensors, microcontroller, small DC motor
1 Supervisory control and data acquisition.
Source: Sunpower and Bernstein estimates and analysis.
Exhibit 13 Several Large-Scale Solar PV Facilities Are Already in Operation;
Europe Leads in Adoption
Solar PV Installations With Capacity of >10 mW
Project Name Country
Capacity
(mW)
Annual
Production
(GWh)
Equivalent
U.S. Households'
Annual Demand
(000) Components
Land Area
(acres)2
Est. Cost
($ mil.)
Estimated
Completion
Date
Solar Power Station in Victoria1 Australia 154 270 24.0 Concentrator technology 2,000 361 2013
Girrasol Solar Power Plant1 Portugal 62 88 7.8 350,000 panels 280 344 2009
Waldpolenz Solar Park1 Germany 40 40 3.6 550,000 thin-film panels 540 179 2009
Beneixama Photovoltaic Power Plant Spain 20 30 2.7 100,000 panels na na 2007
Nellis Solar Power Plant1 United States 15 25 2.2 70,000 panels 140 na na
Erlasee Solar Park Germany 12 14 1.2 na 190 71 2006
Serpa Solar Power Plant Portugal 11 20 1.8 52,000 panels 150 75 2007
Pocking Solar Park Germany 10 12 1.0 57,912 panels 80 55 2006
Monte Alto Photovoltaic Power Plant Spain 10 14 1.2 na 125 89 2007
1 Under construction.
2 One acre is roughly the size of a football field.
Source: Corporate reports and Bernstein analysis.
Exhibit 14 Inverters Represent a Higher Percentage of Costs in Smaller-Scale Systems
Average Cost of Solar PV System ($ million per mW)
Small System Large System
Component Cost
Share of
Total Cost
Share of
Total IT-Related Components
Panels $4.8 66% $4.5 75% Silicon
Inverter 0.7 10 0.3 5 Power semiconductors (IGBT)
Rack 0.5 6 0.2 4 -
Labor 1.0 13 0.6 10 -
Other 0.4 5 0.4 6 SCADA (large systems)
Total $7.3 100% $6.0 100%
Total IT-Related Cost
Small System (4 kW; $ 000) $22
Large System (10 mW; $ million) 50
Source: Focus on Energy, Solar Buzz, Xantrex and Bernstein estimates and analysis.

Depending on system size, and including the entire panel as IT, we es-
timate that information technology represents 67-76% of total solar system
cost. There are two primary IT components in solar PV systems: silicon for
the cells in the solar panel, and power semiconductors in the inverter. As
previously discussed, the inverter plays the critical role of converting DC
power produced by the panel into AC power that can be used in the build-
ing, home or electrical grid. Within most inverters, this conversion is en-
abled by one or more integrated-gate bipolar transistors (IGBTs); in smaller
systems MOSFETs are also used. Semiconductor content varies with system
size, but is generally higher in smaller systems. A "typical" home solar sys-
tem with an energy capacity of 4 kW contains approximately $40 of IGBTs
(and/or MOSFETS; $10/kW; see Exhibit 15). In contrast, a larger regional
5 mW facility contains approximately $20,000 of IGBTs (or $4/kW), a 2.5:1.0
ratio. Accordingly, from a semiconductor manufacturer perspective, the
revenue opportunity is much larger if there is a broader push toward resi-
dential and small-business installations.
Exhibit 15 IGBT/MOSFET Content Is Roughly Double in Small-Scale System
IGBT Content by Solar System Type
Application Capacity
Inverter(s)
Cost
Est. IGBT
Cost
IGBT
Share
IGBT Cost
per kW
Large-Scale Solar 5 mW $1,200,000 $20,000 2% $4
Residential Solar 4 kW 3,000 401 1 10
1 Includes some MOSFET content.
Source: Infineon, Xantrex, industry experts and Bernstein analysis.
There are essentially four layers in the solar panel supply chain: (1) sili-
con and related-material producers, e.g., MEMC Electronic Materials
(WFR); (2) manufacturers of equipment to produce solar panels, e.g., Ap-
plied Materials (AMAT); (3) component manufacturers such as inverters,
e.g., Xantrex; and (4) solar panel producers/integrators, e.g., Sunpower.
With respect to industry dynamics, one central issue is the pace of technol-
ogy improvement around efficiency, which remains relatively low (i.e.,
only 10-20% of the energy striking the panel is converted into electricity).
The present focus is on material innovation such as thin-film productivity
(i.e., using less silicon on the panel) and silicon alternatives (e.g., cadmium
telluride). Progress on these fronts could serve to correct the current silicon
supply-demand imbalance and negatively impact prices (see Exhibit 16).
Accordingly, our medium- to long-term investment bias is away from the
silicon producers. For panel manufacturers and panel-equipment produc-
ers, we expect strong growth to continue, given the very low representation
of solar power in global energy. We see future panel manufacturer outper-
formance more closely tied to cost/performance breakthroughs in electrical
efficiency, component and silicon sourcing advantages, and the ability to
integrate the panels into other products, such as building materials. Be-
cause of this large integration potential, we expect much broader adoption
of smaller-scale solar systems. Nearly all of these systems will require in-
verters and related-semiconductor content (i.e., IGBTs/MOSFETs). Accord-
ingly we are positively biased toward those two areas. Select fundamental
and valuation data are shown for companies across the different levels of
the supply chain in Exhibit 17; for semiconductor producers see again Ex-
hibit 9. A sample of key research areas and emerging private companies are
shown in Exhibit 18.

19
Exhibit 16 Increasing Demand for Silicon Has Led to Supply Constraints,
Driving Up Silicon Pricing Significantly
0
10
20
30
40
50
60
70
80
90
2004 2005 2006 2007E 2008E 2009E 2010E
MetricTons(000)
Semiconductor Demand Solar Demand Supply Capacity
Shortage
Expected Surplus?
Polysilicon Supply Capacity and Demand (2004-0E)
Source: Gartner and Bernstein analysis.
Exhibit 17 Companies Across the Solar PV Supply Chain; Medium-/Longer-Term,
We Are More Cautious on Silicon Producers
Summary of Solar Energy Companies
Ticker Name Country
Market Cap
2007 YTD
Return
Solar Cell and Panel Manufacturers, etc.
6753 Sharp Corp. Japan $19.1 19.1x 0.7x 1%
6971 Kyocera Corp. Japan 17.1 18.1 1.5 (5)
FSLR First Solar, Inc. United States 10.0 106.6 40.1 359
QCE-DE Q-Cells AG Germany 8.9 42.1 13.5 134
SPWR Sunpower Corp. – Cl A United States 7.1 48.5 14.0 140
SWV-DE SolarWorld AG Germany 6.7 34.5 7.4 80
STP Suntech Power Holdings Co. Ltd. – ADS China 6.1 27.3 6.5 20
LDK LDK Solar Co. Ltd. – ADS China 5.3 27.8 20.0 112
CGY-DE Conergy AG Germany 3.1 22.3 2.4 37
JASO JA Solar Holdings Co. Ltd. – ADS China 2.0 27.9 10.8 0
6244-TW Motech Industries, Inc. Taiwan 2.0 20.6 5.2 1
TSL Trina Solar Ltd. – ADS Cayman Islands 1.3 18.7 5.8 206
ENER Energy Conversion Devices, Inc. United States 1.1 63.6 9.2 (22)
SOO1-DE Solon AG fuer Solartechnik Germany 1.0 27.0 1.9 224
ES6-DE ErSol Solar Energy AG Germany 1.0 19.5 5.1 55
ESLR Evergreen Solar, Inc. United States 1.0 - 6.8 25
3452-TW E-Ton Solar Tech. Co. Ltd. Taiwan 0.7 18.0 6.3 (3)
SOLF Solarfun Power Holdings Co. Ltd. – ADS China 0.6 23.9 4.5 12
Median $2.0 27.3x 6.6x 46%
(cont'd)

Exhibit 17 Companies Across the Solar PV Supply Chain; Medium-/Longer-Term,
We Are More Cautious on Silicon Producers (cont'd)
Summary of Solar Energy Companies
Ticker Name Country
Market Cap
2007 YTD
Return
Solar Grade Silicon
8058 Mitsubishi Corp. Japan $50.5 13.3x 1.1x 58%
8053 Sumitomo Corp. Japan 22.9 10.8 0.9 24
REC-NO Renewable Energy Corp. ASA Norway 22.8 42.5 21.5 119
WFR MEMC Electronic Materials Inc. United States 14.8 16.7 8.4 68
WCH-DE Wacker Chemie AG Germany 12.0 19.2 2.4 77
4043 Tokuyama Corp. Japan 4.0 20.0 1.6 (7)
Median $18.8 18.0x 2.0x 63%
Inverters
TSE:XTX Xantrex Technology, Inc. Canada $0.4 26.7x 1.7x 44%
SATC SatCon Technology Corp. United States 0.0 - 1.2 (2)
Median $0.2 26.7x 1.5x 21%
Photovoltaic Production Equipment
AMAT Applied Materials, Inc. United States $29.1 16.6x 3.0x 16%
OERL-CH OC Oerlikon Corp. AG Switzerland 5.5 13.8 2.8 (18)
6728 ULVAC, Inc. Japan 1.4 14.3 0.7 9
AIXG Aixtron AG – ADS Germany 0.9 - 2.9 122
R8R-DE Roth & Rau AG Germany 0.8 40.6 5.9 484
MBTN-CH Meyer Burger Technology AG Switzerland 0.7 28.6 10.6 413
Median 1.1 16.6x 3.0x 69%
IYW Technology Sector 20.9x 2.2x 17%
SPX S&P 500 15.3 1.6 10
Source: FactSet and Bernstein analysis.
Exhibit 18 Concentrating the Sun's Energy to Increase Electrical Output and
Thin-Film Technology Are Key Research Areas
Emerging Private Companies and Key Photovoltaic Research Areas
Company Research Area Investors
Solaria Cell efficiency Sigma, NGEN
SolFocus Concentrated PV NEA, NGEN
Energy Innovations Concentrated PV MDV, Idealab
Pacific SolarTech Concentrated PV -
Nanosolar Thin film Benchmark, MDV, SAC
HelioVolt Thin film Paladin, New Enterprise Associates
Source Corporate reports and Bernstein analysis.

21
Wind Power: Large-Turbine
OEMs/Systems Integrators
Preferred Over Suppliers
Higher Degree of Vertical
Integration
Wind power is harnessed via large rotor blades that capture the kinetic en-
ergy of the wind and convert it into mechanical torque. The rotor turns a
drive shaft which is connected to an electric generator which in turn pro-
duces AC current. The amount of power generated is directly proportional
to the air density, the area swept by the turbine blades and the cube of the
wind speed.4
A standard wind turbine consists of the tall wind tower, rotor blades,
and a nacelle, which houses the principal electromechanical components.
Typically, several wind turbines are connected in a substation, which then
connects to the broader electrical grid. Large-scale wind-power deployment
has been a growing contributor to European energy for years; an oft-cited
example is Demark, which generates roughly 20% of its power from wind
(the global penetration is approximately 1%).
Because of the variable nature of wind speed and direction, wind tur-
bines have relatively complex control and positioning systems to adjust the
pitch and angle of the rotor blades. These systems enable the wind turbine
to optimize power generation in varying weather conditions. As with solar
systems, cost is largely a function of the size or energy output of the system.
A "typical" wind turbine has a capacity of 1.5-2.0 megawatts and costs be-
tween $1.5-$3.0 million, or $1.0-$1.5 million per megawatt of installed ca-
pacity. The nacelle accounts for approximately 60% of the turbine cost, the
rotor blades 23%, and the tower 15% (see Exhibit 19). An incremental 7% of
the total project cost is generally required for the substation, which houses
the larger electrical equipment necessary for integrating with the grid.
As with solar panel systems, the principal link between wind power
and information technology is through the power converter (in this case,
wind converter), which contains the semiconductors necessary to stabilize
the power. Wind speeds vary, and therefore unaltered wind systems create
currents with amplitude and frequency fluctuations. In order to stabilize
these fluctuations, the current is first converted from AC to DC, and then
back from DC to AC. This functionality is again performed by IGBTs, made
by the same semiconductor companies that serve the solar market (see Ex-
hibit 9). While the power conversion in a wind turbine is more complex
than in solar — AC/DC and DC/AC conversion is required — because of
the high cost of other components, on a percentage basis IT costs are lower.
In aggregate, we estimate that IT-related costs represent 3-5% of the total
cost of an installed commercial wind facility (see Exhibit 20). For a 60mW
wind farm, that would represent approximately $4 million, of which ap-
proximately $0.4 million is IGBTs. On a per-megawatt basis, IT content is
approximately $60,000-$70,000.
4 EWEA Wind Directions, February 2007.

Exhibit 19 The Tower, Rotor Blades and Nacelle Are the Primary Wind System
Components; a Growing Trend Is to Increase Electronic Content
in the Nacelle
Summary of Wind Farm Components
Total Cost1 ($ million)
Component Function
Share of
Turbine Cost
Typical Turbine
(2 mW)
60 mW
Wind Farm
Turbine
Nacelle Houses drivetrain and electric systems 62% $1.48 $44.3
– Gearbox and Related Transmit torque from the rotor to the generator 21 0.51 15.3
– Turbine Positioning Pitch, yaw and break systems 11 0.26 7.8
– Power Converter Converts DC from the generator into AC electricity 5 0.12 3.6
– Transformer Controls voltage 3 0.07 2.2
– Generator Converts mechanical energy into electricity 7 0.17 5.0
– Electronic Control Unit Controls turbine operation 2 0.04 1.1
– Other - 13 0.31 9.3
Rotor Blades Generate torque by capturing wind energy 23 0.55 16.6
Tower Raises turbine for optimal wind conditions 16 0.37 11.2
Subtotal 100% $2.40` $72.0
Substation
Power Conditioning Transforms power to high voltage for distribution $5.8
SCADA Monitors and controls the system 0.2
Other - 0.5
Subtotal $6.5
Other
Labor, HV Extension, Infrastructure, etc. $11.5
Total Wind Farm Cost $90.0
IT-Related as a Share of Total Cost 4%
1 Assumes total cost is $1.5 million per mW of installed capacity (includes turbines, substation, infrastructure and labor).
Source: AMSC, EWEA Wind Directions (February 2007), BTM Consult and Bernstein analysis.
Exhibit 20 IT-Related Components Represent Approximately 3-4% of Installed Capacity
Cost, or $4 Million per 60 mW System; IGBTs Represent Approximately
10% of IT Content
IT-Related Costs for a Typical 60 mW Wind Farm
Component
Est. Cost
($ million) IT Components
Wind Power Converter $1.8 Power semiconductors (IGBTs, diodes)
Electronic Control Unit 1.1 Sensors, microcontrollers, software, etc.
Substation Power Conditioning Equipment 0.6 Power semiconductors (IGBTs, diodes)
Substation SCADA System 0.2 Communication and data processing equipment, software, etc.
Total IT-Related Content $3.7
IGBT Content 0.4
IT-Related Content per mW ($) $61,333
Source: Infineon, AMSC, industry contacts and Bernstein analysis.
Like other clean energy technologies, wind power represents only a
small fraction (approximately 1% of total electricity generation) and there-
fore has enormous future potential. Growth rates in installed capacity over
the last five years have varied between 20% and 35%, and 2007 growth is
expected to again be over 20% (see Exhibit 21). Continued tax credits and
government involvement are likely to support high growth rates in the near
to medium term (at least). However, unlike the solar market, major wind
turbine providers tend to have a higher degree of vertical integration. For
example, GE Energy and Suzlon make the majority of subcomponents (see
Exhibit 22). On a relative basis, we believe this favors the large integrators
over suppliers. Major wind power companies and valuations are shown in
Exhibit 23.

23
Exhibit 21 Wind Power Capacity Growth Is Expected to Remain High
Worldwide Wind Energy Market Size and Growth
Metric 2006 2007E YoY Growth
Year-End Capacity (mW) 73,904 90,000 22%
New Capacity Installed (mW) 14,900 16,096 8
Cost of New Capacity ($ bil.) $22.4 $24.1 8
Note: Assumes 2006 average cost of $1.5 million per installed mW of capacity, staying flat in 2007.
Source: WWEA, AWEA and Bernstein estimates and analysis.
Exhibit 22 Higher Level of Vertical Integration in Wind Relative to Solar Favors
Large Integrators Over Suppliers
Overview of Major Wind Turbine Supplier Relationships (As of Early 2007)
Turbine Manufacturers
Component Vestas GE Energy Gamesa Enercon Suzlon
Rotor Blades Vestas, LM LM, Tecsis Gamesa, LM Enercon Suzlon
Bosch, Rexroth, Hansen,
Winergy, Moventas
Winergy, Bosch, Rexroth,
Eickhoff, GE
Gearboxes Weier, Elin, ABB,
Leroy Somer
Loher, GE Echesa (Gamesa),
Winergy, Hansen
Direct Drive Hansen, Winergy
Generators Vestas, NEG, DMI DMI, Omnical, SIAG Indar (Gamesa),
Cantarey
Enercon
KGW, SAM
Suzlon, Siemens
Suzlon
Towers Cotas (Vestas), NEG Gamesa
Controllers (Dancontrol) GE Ingelectric (Gamesa) Enercon Suzlon, Mita Teknik
Note: Names in bold indicate in-house supply or ownership of supplier by turbine manufacturer.
Source: BTM Consult, EWEA Wind Directions (February 2007) and FactSet.
Exhibit 23 Primary Pure-Play Wind Turbine Manufacturers Are European
Select Valuation Metrics for Wind Turbine Manufacturers and Suppliers
Mkt Cap
Market
Share
2006 Wind
Revenue as a
Share of Total
Turbine Manufacturers
VWS-DK Vestas Wind Systems A/S Denmark $15.4 30.5x 2.7x 28% 100%
GAM-ES Gamesa Corporacion Tecnologica Spain 10.1 24.2 2.4 15 95
GE General Electric Co. United States 428.0 17.0 2.6 15 121
Private Enercon Germany - - - 15 100
532667-IN Suzlon Energy Ltd. India 12.0 31.1 5.4 8 100
SIE-DE Siemens AG Germany 126.4 15.2 1.1 7 121
NDX1-DE Nordex AG Germany 3.3 35.6 4.0 3 100
RPW-DE REpower Systems AG Germany 1.4 25.7 2.1 3 -
ANA-ES Acciona S.A. Spain 18.2 21.1 1.9 3 141
CWP-GB Clipper Windpower PLC United Kingdom 1.3 76.0 166.0 1 100
Suppliers Supply Area
ABBN-CH ABB Ltd. Switzerland $58.4 20.2x 2.1x Generators, power electronics
EMR Emerson Electric Co. United States 43.0 18.1 2.0 Generators
ALO-FR Alstom S.A. France 29.2 23.1 1.4 Generators, power electronics
6503 Mitsubishi Electric Corp. Japan 27.0 19.3 0.8 Power semis
IFX-DE Infineon Technologies AG Germany 11.8 22.4 1.0 Power semis
IRF International Rectifier Corp. United States 2.6 14.5 1.8 Power semis
WGOV Woodward Governor Co. United States 2.3 22.8 2.3 Power electronics
OTTR Otter Tail Corp. United States 1.1 19.3 0.9 Towers
AMSC American Superconductor Corp. United States 0.9 na 14.2 Power electronics
TSE:XTX Xantrex Technology Inc. Canada 0.4 26.7 1.7 Power electronics
MAG MagneTek Inc. United States 0.2 16.6 1.4 Power electronics
1 Total energy business, wind details not available.
Source: BTM Consult, EWEA Wind Directions (February 2007), FactSet and Bernstein analysis.

Hybrid Vehicles: Sector Poised for
Explosive Growth
Japanese Battery Makers Well
Positioned, But No Large Public
Pure-Plays (Yet); Meaningful
Acceleration in Automotive
Semiconductors (IGBTs) in
2009
We are thankful to Saurin Shah at AllianceBernstein L.P. and Matt Kromer at
MIT for furthering our understanding of hybrid automobile systems
The vast majority of the world's automobiles rely solely on internal
combustion engines (ICEs) for propulsion (see Exhibit 24). These engines
take advantage of the high energy density of gasoline and diesel fuels rela-
tive to other energy sources (see Exhibit 25). However, in terms of energy
capture, ICEs are highly inefficient, harnessing only 15% of energy pro-
duced, compared with 80% for electric motors (most ICE power is lost in
heat; see Exhibit 26). With respect to emissions, a typical ICE-based car
emits 5-6 tons of CO2 into the atmosphere each year.
Exhibit 24 Gasoline and Diesel Power 97% of All
Automobiles
Exhibit 25 Liquid Fuels Have Significantly Higher
Energy Densities Than Batteries
2006 Global Light Vehicle Sales by Fuel Type Energy Densities for Sample Sources
Fuel Units (mil.) Share Source
Density by Mass
(MJ/kg)
Gasoline 47.3 74% Diesel 45-50
Diesel 14.7 23 Gasoline 45-50
Ethanol, Other 1.5 2 Aviation Fuel 45-50
Hybrid 0.3 1 Ethanol 30
Total 63.8 100% Li-Ion Battery 0.5-0.7
Ethanol30 NiMH Battery 0.2
Lead-acid Battery 0.1
Source: J.D. Power-LMC and Bernstein analysis. Source: J.D. Power-LMC and Bernstein analysis
Exhibit 26 The Majority of Internal Combustion Engine Energy Is Lost as Heat
Internal Combustion Engine
15%
100%
(6)%
(17)%
(62)%
0%
20%
40%
60%
80%
100%
120%
Energy
Input
Heat
Loss
Idle
Loss
Driveline
Loss
Energy
Output
Electric Motor
100%
80%
0%
20%
40%
60%
80%
100%
120%
Energy
Input
Driveline
Loss
Electric
Resistance
Energy
Output
(6)%
(14)%
Source: EPA and AllianceBernstein L.P.

25
Increasing awareness of environmental impacts, government-
supported initiatives (e.g., in California), and the rising cost of oil-based fu-
els have resulted in demand for, and dramatic progress in, hybrid electric
and non-GHG emitting vehicles. At present, Toyota, Nissan and Honda of-
fer nine hybrid electric models, and Ford, GM and Chrysler offer four mod-
els (see Exhibit 27). Ethanol-based and fuel-cell vehicles have also received
increasing attention. We have not considered ethanol or fuel cells here be-
cause the former has no meaningful incremental IT content, and fuel cells
are generally not believed to have commercial potential for the next five
years. (For a more complete discussion of the hybrid vehicle market, please
see the June 2006 report from AllianceBernstein, "The Emergence of Hybrid
Vehicles" by Amy Raskin and Saurin Shah).
Exhibit 27 There Are Nine Mainstream Hybrid Models Available; Toyota Leads
Available Hybrids by Automaker (As of September 2007)
Company Hybrid Models
Toyota Toyota Prius; Toyota Camry; Toyota Highlander; Lexus GS; Lexus LS; Lexus RX
Honda Honda Accord; Honda Civic
Nissan Nissan Altima
Ford Ford Escape/Mercury Mariner
GM Saturn Aura; Saturn VUE; Chevrolet Tahoe/GMC Yukon
Chrysler -
Source: Company Web sites and Bernstein analysis.
There are essentially three approaches used in electric automobile pro-
pulsion: hybrid electric vehicles (HEVs), plug-in hybrid electric vehicles
(PHEVs) and all-electric (AEVs vehicles). The first two approaches — HEV
and PHEV — add an electric propulsion system to the gas-based propul-
sion system, resulting in a car with two (or more) motors. Among HEVs,
there is a further distinction between "mild" and "full," which relates to the
amount of electric power. Full hybrids generate enough power to fully op-
erate the car over short distances, while "mild" hybrids generally only assist
the internal combustion engine. PHEVs are designed to rely on the electric
system as much as possible, engaging the ICE only when there is not
enough battery power. Accordingly, the primary difference between HEVs
and PHEVs relates to the size/power output of components (i.e., bigger
battery, bigger motor, etc.). PHEVs also require regular charging to run in
electric mode. The third approach — all electric — removes the internal
combustion engine entirely and relies solely on electric power from a bat-
tery. Because AEVs have limited range, mass adoption is likely predicated
on large-scale changes to gas station infrastructure, e.g., metered power
cords at every station. Examples of production and pre-production vehicles
are shown in Exhibit 28. Despite the "geeky" image associated with the first-
generation hybrids, perception is evolving rapidly with entrants in the lux-
ury market (e.g., Lexus), and the planned sports car from Tesla, which
claims to accelerate from zero to 60 mph in four seconds (expected 3Q:08).

Exhibit 28 In General, the Larger the Contribution from the Electric Motor/Battery, the
"Cleaner" the Vehicle
Summary of Current and Developing Vehicle Technologies
Gasoline Diesel Ethanol HEV PHEV All Electric Fuel Cell
Engine Type Internal
Combustion
Internal
Combustion
Internal
Combustion
Internal
Combustion &
Electric Motor
Combination
Internal
Combustion &
Electric Motor
Combination
Electric Motor Only Electric Motor
Powered by
Internal Source
Fuel Gasoline Diesel Ethanol Gasoline and
NiMH Battery
Gasoline and
NiMH Battery
Battery Hydrogen
Carbon-Fuel-
Powered Engine Yes Yes No Yes Yes No No
Electric Motor? No No No Yes Yes Yes Yes
Relative Lifecycle
Emissions
Example Honda Civic Jeep Grand
Cherokee CRD
Chrysler Sebring Toyota Prius Converted
Toyota Prius
Tesla Roadster
(July 2008)
No commercial
vehicles yet
Source: Company Web sites and Bernstein estimates and analysis.
All HEVs have advanced control systems to manage battery power and
balance the use of the electric and internal combustion motors. For exam-
ple, during high-speed acceleration an electric motor might be used, and
during low-speed acceleration or cruising the internal combustion engine
might be used. This usage is optimized based on energy requirements and
the power status of the battery. In addition, HEVs have components to har-
ness energy otherwise lost while operating the vehicle, e.g., braking, and
use that energy to charge the battery. The main components of all three
electric vehicle types are the battery, the electric motor, the generator, and
advanced sensors and controls (see Exhibit 29). In aggregate, "full" hybrid
electric vehicles add approximately $3,500 of component cost to a standard
vehicle.
With respect to IT, the two most promising areas for investment are the
additional semiconductor content and the batteries, representing approxi-
mately 60% of the incremental component cost (see Exhibit 30). Like solar
and wind systems, semiconductors are needed to perform DC/AC conver-
sion. In this case, DC power from the battery must be converted to AC
power for the electric motor. This function is again performed by the IGBT
(for a full description of IGBT functionality see the chapter entitled, "IT In-
vestment Areas and Key Conclusions." For "full" hybrid vehicles, we esti-
mate that IGBTs represent approximately $500 of incremental spending per
vehicle, and for "mild" hybrids approximately $100. In the hybrid IGBT
market, Toyota is the current leader (with its supplier Denso, Toyota has
developed and vertically integrated many of the core hybrid components).
Mitsubishi supplies other Japanese automobile manufacturers and Infineon
claims a supply deal that will begin in late 2008 (for an overview of IGBT
manufacturers, again see Exhibit 9).

27
Exhibit 29 Hybrid Electric Vehicle Components Add Approximately $3,500 to Vehicle
Cost; Including the Battery, IT-Related Components Represent 60% of the
Incremental Cost
HEV Components and Costs for a Small-Full Hybrid Vehicle
Manufacturers' Cost of Components Function Est. System Cost Market Participants
NiMH or Li-Ion Battery Stores electric power $1,200-$1,500 Panasonic EV, Sanyo, Cobasys
Battery Control System Controls battery operation 200-300 Toyota/Denso, Infineon, Keihin
Electronic Control Unit (ECU) Controls the power electronics of the vehicle 400-600 Toyota/Denso, Infineon, Keihin
Electric Motor Propels vehicle 800 Toshiba, Hitachi
Generator Converts mechanical energy to electricity 600 Toshiba, Hitachi
Other (Wiring, etc.) - 300 Sumitomo, Toyota, Aisin Seki
Savings (Smaller Engine, Power-Split vs.
Transmission, etc.) - (300)
Total Incremental Cost
IT Components Including Battery $1,800-$2,400
Source: Infineon, industry experts, AllianceBernstein L.P. and Bernstein estimates and analysis.
Exhibit 30 Advanced Batteries and Power Semiconductors Represent the Majority of
Incremental Spending
Semiconductor Content of HEVs
Component Full Hybrid Mild Hybrid Market Participants
Definition Electric motor is capable of powering
the vehicle by itself
Electric motor "assists" IC engine
Example Toyota Prius Honda Civic
Est. Incremental Semiconductor
Content $400-$1,000 $100-$250
Share of Incremental Semiconductor Cost
Power Management 78% 60%
IGBT Housing/Module 44 35 IFX, Mitsubishi, Semikron
IGBTs, Power Diodes 34 25 Toyota, IFX, IRF, STM, Mitsubishi
Logic, ASIC 10% 15% NXP, STM, Melexis, Denso
Microcontrollers (32 bit) 5 12 FSL, NEC, TXN, IFX, NXP
Power Supply 4 8 IFX, STM, IRF, FCS, Toshiba
Sensors 3 5 Bosch, IFX, FSL, ADI
Source: Infineon and Bernstein estimates and analysis.
In addition, incremental semiconductors are needed to manage power
recapture (e.g., braking) and power balancing between the ICE and the elec-
tric motor. We expect this opportunity to be largely an incremental oppor-
tunity for incumbents. Semiconductor content in automobiles has been in-
creasing steadily over the last 10 years, and automaker qualification and
certification processes are arduous (see Exhibit 31). The leading semicon-
ductor companies in the automobile segment are Freescale, Infineon and
STMicroelectronics and are shown in Exhibit 32.

Exhibit 31 Semiconductor Content in Automobiles Continues to Grow, and Will be
Further Boosted by Electric Hybrids
$100
$150
$200
$250
$300
$350
$400
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Value of Semiconductor Content in Automobiles (1995 to Present)
Source: Infineon and Bernstein analysis.
Exhibit 32 Incumbent Semiconductor Companies Are Likely to Win Incremental Content
Top 20 Companies' Revenue from Shipments of Automotive Semiconductors (2006)
Ticker Company Name Country
Automotive
Revenue
($ billion)
Market
Share
Share of
Total Revenue
Private Freescale Semiconductor United States $2.0 10% 32%
IFX-DE Infineon Technologies Germany 1.6 8 14
STM-FR STMicroelectronics France 1.5 8 15
Private Renesas Technology Japan 1.3 7 17
Private NXP Netherlands 1.0 5 20
6701-JP NEC Electronics Japan 1.0 5 2
Private Robert Bosch Germany 1.0 5 na
TXN Texas Instruments United States 0.8 4 6
6502-JP Toshiba Japan 0.7 4 1
6963-JP Rohm Japan 0.5 3 14
6702-JP Fujitsu Japan 0.5 3 1
005930-KR Samsung Electronics South Korea 0.4 2 0
6902-JP Denso Japan 0.3 2 1
INTC Intel United States 0.3 2 1
ATML Atmel United States 0.3 2 17
ONNN ON Semiconductor United States 0.2 1 15
ADI Analog Devices United States 0.2 1 9
IRF International Rectifier United States 0.2 1 17
VSH Vishay Intertechnology United States 0.2 1 7
MELE-BE Melexis Belgium 0.2 1 70
Others $4.5 24%
Total Market $18.6
Source: Gartner and Bernstein analysis.
With respect to batteries, the vast majority of existing hybrids use
nickel metal hydride (NiMH) chemistry. These batteries have twice the en-
ergy density of traditional lead acid batteries and perform well through re-
peated charge and discharge cycles. This market is dominated by Panasonic
EV, a joint venture between Matsushita and Toyota. One focus of current
research is adapting lithium ion batteries (the same technology used in lap-
tops) for the automobile market. Lithium ion offers higher energy than
NiMH but currently is more expensive. Additional concerns involve the
stability of the common cathode material, cobalt oxide, which is flamma-
ble/explosive (recall Dell laptop fires). GM's lithium ion technology uses a

29
new battery chemistry (an iron-phosphate−based electrode) which is con-
sidered safer than cobalt oxide. The shift to lithium ion has the potential to
bring traditional players in battery providers — e.g., laptops and other
portable electronics — into the market in the medium to long term. How-
ever, this is unlikely to be a rapid transition because of the complexity of
the different battery chemistries. Another focus of current research is the
potential role of ultracapacitors, which offer higher power density than Li-
ion batteries, and rapid charging (Maxwell Technologies [MXWL] has ex-
posure). Leading battery makers by technology, as well as emerging private
firms are shown in Exhibit 33.
Exhibit 33 Sample of Leading HEV-Related Battery and Electric Motor Companies
Summary of Battery and Electric Motor Companies
Ticker Name Country
Market Cap
($ million)
NiMH Batteries
Joint Venture Panasonic EV (Toyota & Panasonic JV) Japan na
6764 Sanyo Electric Co. Ltd. Japan $2,970
Joint Venture Cobasys (Energy Conversion and Chevron JV) United States na
Li-Ion Batteries
JCI Johnson Controls, Inc. United States $24,130
SAFT-FR Saft Groupe S.A. France 833
ALTI Altair Nanotechnologies, Inc. United States 245
VLNC Valence Technology, Inc. United States 173
LTHU Lithium Technology Corp. United States 52
EFL Electrovaya Inc. Canada 27
Emerging Technologies/VC Firms
Private A123Systems United States na
Private Optodot Corp. United States na
Private Phoenix Innovations, Inc. United States na
Private TIAX LLC United States na
Private Lithion Inc. United States na
Private Enerize Corp. United States na
Private Compact Power, Inc United States na
Consumer Electronics Lithium Batteries
677172 Samsung Electronics Co. Ltd. South Korea $88,849
6758 Sony Corp. Japan 49,719
6752 Matsushita Electric Japan 37,964
6502 Toshiba Corp. Japan 29,217
652073 LG Electronics, Inc. South Korea 13,868
6764 Sanyo Electric Co. Ltd. Japan 2,970
Electric Motors
6502 Toshiba Corp. Japan $29,217
6503 Mitsubishi Electric Corp. Japan 26,984
CON-DE Continental AG (Siemens VDO) Germany 20,571
6594 Nidec Corp. Japan 10,387
RZ Raser Technologies Inc. United States 708
ENA Enova Systems, Inc. United States 61
SATC SatCon Technology Corp. United States 49
Private UQM Technologies United States na
Private Robert Bosch Germany na
Source: FactSet, corporate reports and Bernstein analysis.

General "System Efficiency"
Is Likely to Create Many
Opportunities for IT Products
and Companies
Select Examples Include
Intelligent Transportation
Networks, Home Automation
and Power-Efficient Data
Centers
Perhaps the largest opportunity for information technology to reduce
greenhouse gas emissions is by helping to reduce total energy demand
through efficiency gains. These applications are vast and not necessarily
obvious for their contribution to energy consumption. For example, supply-
chain-management software, widely implemented in the 1980s and 1990s,
has made manufacturing and distribution networks more efficient. This is
because the technology enables more accurate demand forecasting, better
production planning, and better coordination between suppliers. As a re-
sult, fewer products are produced, fewer products are wasted, and fewer
deliveries are made, while order fulfillment has improved.
Gains in efficiency will continue to take many forms, in different areas
of the economy. Many of these efficiencies are gained through introducing
a higher level of control in the system. In general, adding control implies in-
creased electronic content. Some of these opportunities will present new
opportunities for investors, others will be largely product improvements or
substitutions by incumbents. In this section we present several examples —
intelligent transportation systems, residential home "automation," and
power in the enterprise — that have the potential to make meaningful con-
tributions to energy efficiency. In some cases the technology and relevant
players are investable now (e.g., GPS/TomTom or SiRF). In others, the
technologies, companies and business models are still evolving. Many new
opportunities are certain to emerge and more work is needed.

31
Intelligent Transportation
Systems
We Expect Traffic Services to
Be a Significant Contributor to
Future NVT (NOK) Revenue and
Profits; Baseband Functionality
in PNDs Likely; SiRF a
Continued Balance of
Near-Term Positive and
Medium-/Long-Term Risks
Intelligent transportation systems capture information about transit routes
that enable companies, travelers and operators to save time, money and/or
distance traveled. With respect to the road infrastructure, one approach is
to install sensors — magnetic, radar and/or video — along as many road-
ways as possible. This approach is expensive, but provides the most accu-
rate data and is generally necessary for direct control of traffic signals. In a
magnetic-based in-road system, several sensors are positioned within a par-
ticular area (e.g., an intersection), these sensors register passing vehicles,
and transmit their data to a local access point (generally within 30 meters of
the sensors). This information can be used to control the traffic signal and
passed on to a server, which integrates data from many other points for
broader network control. The sensors themselves vary in IT content ($20-
$100), but are generally commodity parts. The major expense is in deploy-
ment of these sensors and ongoing maintenance. We are aware of only sev-
eral small public companies with exposure — Iteris and Quixote in the
United States as well as QinetiQ in the United Kingdom — and a few pri-
vate companies, e.g., Sensys Networks, TransCore and Wavetronix.
A broader and more-effective approach is to assemble as many relevant
data streams as possible — in-road sensors data, fleet vehicles with inte-
grated GPS devices, radio traffic reports, road construction schedules, acci-
dents, etc. — into an integrated data package and provide that to users. On
a very small scale, this is what many city commuters do every day: adjust
the driving route according to traffic reports on the radio. However, GPS
devices combined with cellular technologies and other data sources are
making these systems much more powerful.
There are two primary advanced traffic data providers in the United
States: traffic.com (owned by NOK/NVT) and Inrix (private), which sup-
plies TomTom, Garmin and other PND OEMs. Both of these companies use
a similar approach, though the degree of vertical integration and data
"ownership" varies. The central elements of an intelligent road transporta-
tion system are: (1) relevant data inputs; (2) data integration; and (3) data
distribution (see Exhibit 34). The primary data inputs are network-related
data (or "flow" data) and incident-related data. Network data include read-
ings from sensors made available by public road operators. For example, in
the United States, the Department of Transportation has thousands of mag-
netic sensors imbedded in or along select routes (per above). In the United
Kingdom, the National Traffic Control Centre employs a similar network of
sensors and CCTV cameras. In addition, companies contract with fleet op-
erators — e.g., shippers, taxicabs, livery vehicles — for access to their driv-
ers' GPS data, which are used to approximate speed/congestion.

Exhibit 34 Intelligent Transportation Systems Integrate Disparate Data Sources to
Improve Network Flow
Integrate DataAccess Relevant Data Distribute Data
Description/
Process:
• Identify and secure live
access to transportation-
related data feeds
Network-related data
• In- or on-road sensors (public
and private)
• Fleet data, e.g., contract with
shippers and taxis for access to
data on the position of their
drivers
• Consumer device data (future):
extract GPS data through wireless
infrastructure
Incident-related data
• Public transit authority and EMS
response systems
• Highway construction schedules
• Camera networks (public and
private)
• News radio traffic providers
• In-person inspection
• Build technical
infrastructure to integrate
disparate data sources
and map coordinates
• Resolve potential data
inconsistencies
• Format data summary
for distribution: Traffic
Message Channel (TMC)
protocol
• Separate data for
relevant markets (e.g.,
NY/NJ/PA data to NJ
market)
• Separate data for
traffic-flow control
• Distribute data via FM,
HD radio, satellite,
GPRS)
• Receive data with
TMC-enabled device
(e.g., PND, in-dash,
telematics systems,
cellular devices)
Advanced Traffic Data Network Process
The element with the potential to have the largest positive benefit on
this network, and also the most interesting from a development perspec-
tive, is mobile GPS devices. The early automotive GPS devices — i.e., per-
sonal navigation devices (PNDs) made by Garmin, TomTom, Mio and oth-
ers — were designed to give directions only (i.e., combine driver
destination, current GPS location, maps and a routing algorithm to deter-
mine the "best" route). However, now that millions of PNDs have been de-
ployed, pairing these devices with cellular/radio technology has the poten-
tial to create one of the most extensive decentralized sensor networks in the
world. Vastly augmenting this network will be the inclusion of GPS chip-
sets in handsets, which with even low penetrations will add millions of
mobile "sensor points" (i.e., 10% penetration of new devices would add
roughly 130 million units per year, excluding churn). While privacy con-
cerns need to be addressed, we expect most future PND devices to be
equipped with radio technology, many cell phones (i.e., 20-40%) to be
equipped with GPS, and at least a subset of the location data from these de-
vices will be centrally collected. Together these developments will greatly
augment transit information, improve routing, save energy and enable new
location services. Adoption is already being boosted by business models
that bundle "lifetime" subscriptions to traffic with navigation products (e.g.,
Navigon in mid-range and premium PNDs, and BMW in newer automobile
models).
We believe advanced traffic services will increase the already compel-
ling value proposition of automobile GPS navigation, and that both PND
and map providers (now NOK) are likely to benefit. In February 2007, we
published an extensive report on location-based services, the structure of
the consumer GPS market, and respective companies (see Exhibit 35; for the
full report see "Cellular Location-Based Services; Multi-Industry Impact.

33
Who Wins?" February 27, 2007). Despite significant appreciation in the sec-
tor, we remain positive on the long-term outlook, given the low penetration
of devices (see Exhibit 36). However, the Navteq/Nokia and TomTom-Tele
Atlas acquisitions have important ramifications for the sector.
Exhibit 35 TomTom/Tele Atlas Acquisition and the Navteq/Nokia Deal Create Longer-
Term Challenges for Garmin; Traffic Services the Next "Killer Application"
Consumer Location-Based Systems Ecosystem
Handset OEMs
NOK, MOT,
Samsung
Wireless Carriers
Cingular, Verizon,
Vodafone, SKT
In-Dash Auto
Denso, Aisin,
Pioneer
PND-1
GRMN, Mio,
Others
Search/
Adv./Other Aps
GOOG, YHOO,
Medio, JumpTap
LBS Applications
TeleNav, Loopt,
Webraska
GPS Semis
SiRF, GloNav
Mapping Data
NOK / NVT
To End Users
Applications
Components
Competition
End Users
Emerging
PND-2
TomTom
Mapping Data
Tele Atlas
Next-Gen Services
Traffic.com, Inrix,
Advertising, Other
Baseband Semis
QCOM, TXN
Acquisition
Exhibit 36 Automobile GPS Navigation System Penetration Remains Low
Automotive Navigation Penetration (PND and In-Dash)
0%
5%
10%
15%
20%
2002 2003 2004 2005 2006
PenetrationRate
Europe United States
Source: TomTom and Bernstein estimates and analysis.

While we do not see any near-term impact on results, in general the
NOK-NVT acquisition is a medium-/long-term negative for GRMN. Even
if GRMN is able to maintain unfettered access to NVT maps, the pricing of
the maps could increase, NOK could encourage more PND competitors in
the marketplace, and perhaps more importantly, GRMN is likely to be dis-
advantaged in developing next-generation services. For example, if Tom-
Tom believes new features in its maps will give it an advantage in traffic, it
owns its maps and can quickly decide to add these features. If TomTom be-
lieves new features on the PND hardware will facilitate a better user inter-
face between navigation and in-map advertising, it can make this change to
its devices. In contrast, GRMN will need to coordinate these developments
with NOK, which may have other priorities, may want to keep some fea-
tures proprietary, or may want to share/sell advances to GRMN's PND
competitors. For these reasons, absent a disruption of the TomTom-Tele At-
las deal, our longer-term preference is for TomTom over GRMN. Our view
would become more positive if GRMN were able to secure map access, pos-
sibly by acquiring and then developing maps owned by a smaller player
(e.g., ALK).
With respect to traffic, we believe this will be a very "sticky" service,
and even after revenue-sharing with device makers and carriers, will grow
to be a meaningful revenue stream for NOK/NVT (and emerging provid-
ers) over the next three to five years. Traffic services have positive network
externalities — i.e., the value of the data increases with the number of users.
Given TomTom's apparent preference for vertical integration — e.g., Tele
Atlas acquisition — and its lack of a traffic services offering at present, we
believe it is likely that TomTom will acquire the private traffic-data pro-
vider Inrix to "complete" its future development platform.
With respect to SiRF, the primary pure-play GPS semiconductor maker,
we continue to see a balance of near-term opportunities and long-term
headwinds. On the positive side, the NOK/NVT deal is a strong indication
that NOK plans massive GPS deployment in its handsets. While NOK is
currently supplied by TXN and BRCM (which acquired the GPS provider,
Global Locate), this move will spur other handset makers to accelerate GPS
integration, with which SiRF has stronger inroads (in particular MOT and
RIMM). Given SiRF's current technology lead, extensive IP, and currently
low handset shipments, we expect near-/medium-term sales acceleration.
In addition, we continue to see SiRF as a potential acquisition target (INTC?
Freescale?).
Longer term, SiRF is likely to face serious headwinds. In handsets, the
longer the GPS rollout is delayed, the more time its competitors have to
close the technology gap and pressure pricing. For large baseband incum-
bents like TXN, QCOM and BRCM, GPS is largely an incremental opportu-
nity. Accordingly, they would likely be willing to trade pricing on GPS for
increased overall semiconductor content or market share. For SiRF, GPS is
the "only" opportunity and it remains very sensitive to competitor pricing.
In PNDs, SIRF also faces pricing pressure, but perhaps to a lesser extent.
As a derivative opportunity, widespread sensor deployment and
GPS/radio combination imply greater use of the cellular network. Cellular
carriers typically take 35-65% of the revenue from services enabled through
their networks. At large volumes this could provide a marginal boost for
revenues/profits. Among the wireless carriers, Verizon in the United States
and Vodafone in Europe are generally considered leaders in next-
generation services. Select valuation data for key navigation players are
shown in Exhibit 37.

35
Exhibit 37 We Expect Strong Growth to Continue; Given Appreciation, Valuation and
Investment Timing More Relevant
Summary of Navigation Companies
Market Cap
($ billion)
2007 YTD
Return P/FE P/S
GRMN Garmin Ltd. United States $22.5 88% 26.6x 9.9x
TOM2-NL TomTom N.V. Netherlands 8.3 58 17.6 3.9
TRMB Trimble Navigation Ltd. United States 4.8 57 28.3 4.2
SIRF SiRF Technology Holdings, Inc. United States 1.3 (6) 20.3 4.5
Source: FactSet and Bernstein analysis.

"Home Automation" and
Energy Control
Incremental Revenue
Opportunities for Power
Semiconductors But No
Pure-Play Public Company
Investments (for Now);
Variable Energy Pricing and
Transparency Key Catalysts
for Future Opportunities
We are grateful to Dr. Richard Larson at MIT for his contributions on dynamic
energy pricing.
Another general area offering great potential for energy efficiency gains
involves electrical systems in structures and appliances. The scope of solu-
tions is very broad, ranging from replacing incandescent light bulbs with
more-efficient fluorescent versions, to whole-building approaches. The Bah-
rain World Trade Center, for example has large wind turbines integrated
into its structure. The structural and material choices made during the
building phase — e.g., how much and what type of insulation — are per-
haps the most important determinants of the lifetime energy needs of a
building. In general, this creates a misalignment of incentives: e.g., builders
realize lower costs by putting in the least amount of insulation, but this
drives higher lifetime energy costs for the homeowner. National efforts
such as Energy Star in the United States and Blue Angel in Germany give
product and efficiency ratings, but the extent of implementation and con-
sumer interest/demand vary widely.
With respect to IT solutions, we see two potential opportunities. The
first is to make appliances more electrically efficient. This will center round
the power-management devices within the appliances. In developed coun-
tries, air conditioners, refrigerators and space/water heating are among the
biggest drivers of electricity consumption (see Exhibit 38). In some of these
appliances, particularly those with fans, using variable speed motors with
electronic/semiconductor control would significantly boost electrical effi-
ciency. For example, at present many appliances are driven by an AC motor
connected directly to the power source. These motors switch on or off de-
pending on the settings, i.e., if temperature is below x, turn on; if tempera-
ture is above y, turn off. Electrically, it is more efficient to run the fan stead-
ily, but at lower RPMs. Making this change will require different motors
and higher semiconductor content in appliances, which would again bene-
fit power and discrete semiconductors (see Exhibit 39).

37
Exhibit 38 Air Conditioners, Refrigerators and Heating Appliances Are the
Largest Drivers of Home Electricity Use
U.S. Residential Consumption of Electricity by End Use (2001)
Appliance
kWh
(billion)
Share of
Total
Air Conditioning 183 16%
Refrigerators 156 14
Space Heating 116 10
Water Heating 104 9
Lighting (Indoor and Outdoor) 101 9
Clothes Dryer 66 6
Freezer 39 3
Furnace Fan 38 3
Color TV 33 3
Electric Range Top 32 3
Dishwasher 29 3
Electric Oven 21 2
Microwave Oven 19 2
Personal Computer (Desktop) 17 2
VCR/DVD 11 1
Clothes Washer 10 1
All Other 164 14%
Total 1,140
Source: U.S. Department of Energy and Bernstein analysis.
Exhibit 39 Semiconductor Companies Enabling More Efficient Power Usage
to Be Advantaged
Summary of Discrete Semiconductor Companies
Market Cap
6752 Matsushita Electric Japan $38.0 17.3x 0.5x
6502 Toshiba Corp. Japan 29.2 22.7 0.5
6503 Mitsubishi Electric Corp. Japan 26.8 19.3 0.8
6702 Fujitsu Ltd. Japan 15.1 21.3 0.3
STM-FR STMicroelectronics N.V. France 14.9 17.6 1.4
IFX-DE Infineon Technologies AG Germany 11.8 22.4 1.0
6963 Rohm Co. Ltd. Japan 9.8 20.7 2.9
6701 NEC Corp. Japan 9.8 26.6 0.2
ONNN ON Semiconductor Corp. United States 3.6 13.1 2.3
6764 Sanyo Electric Co. Ltd. Japan 3.0 51.8 0.2
VSH Vishay Intertechnology, Inc. United States 2.5 11.8 1.0
IRF International Rectifier Corp. United States 2.5 14.3 2.0
FCS Fairchild Semiconductor United States 2.3 18.5 1.4
Source: Gartner, FactSet and Bernstein analysis.
The second opportunity involves "home automation" products, which
is essentially a misnomer for home-appliance control. These products have
the potential to reduce wasted electricity (e.g., leaving the lights on), and
when combined with other technologies, can boost overall system effi-
ciency. On the commercial side, penetration rates of select controls systems
(advanced thermostats, variable lighting) are already reasonably high:
Home Depot, for example, controls the timing of lighting for many of its na-
tionwide stores from its headquarters in Atlanta (see Exhibit 40). Part of the
commercial opportunity is currently being captured by energy appliance
companies such as Honeywell. At the residential level the opportunity is
similarly large, but absent a catalyst — e.g., a spike in energy prices, ag-
gressive education effort, or federal or local mandates — growth rates and
adoption are likely to remain slow.

Exhibit 40 Advanced Appliance Control Products Continue to Have Very Low
Penetration Rates Outside of Large Businesses
Advanced Lighting and Heating Control ("Home Automation") Penetration Rates
0%
5%
10%
15%
20%
25%
30%
Residences Small/Medium-Size Enterprises Large Businesses and Chain Retail
PenetrationRate
20%+
2-4%
2%
Source: Industry sources and Bernstein estimates and analysis.
The core components of a residential home automation system include
a home controller, controllable light switches and various sensors (see Ex-
hibit 41). Each sensor or control unit is connected to the home controller,
and then the operation of the system, e.g., light A to be controlled by occu-
pancy sensor B, are stipulated through the software platform. The standard
protocol is Universal Powerline Bus (UPB), which enables communication
and control over power lines. According to industry experts, approximately
$20 of each $100 a homeowner spends is for IT-related components, princi-
pally controllers, microcontrollers, discrete semiconductors and software
platforms. Given that a "typical" home system costs $4,000-$5,000, this
translates to an incremental $800-$1,000 per home. Assuming current pene-
tration rates of 2-4%, and 255 million homes in the United States and West-
ern Europe, reaching 25% penetration represents an incremental $55+ bil-
lion in IT-related spending (see Exhibit 42).
Exhibit 41 A Typical "Home Automation" System Costs Approximately $5,000
and Has Roughly $1,000 of IT-Related Content
Core Home Automation Components
Component Functionality Installed Cost
Home Controller Home CPU; central interface unit for controlling all "activated" appliances $1,500-$4,000
Advanced/Communicating Thermostats Enhanced customizability of structure temperature; often through multiple
indoor/outdoor temperature readings and multi-zone control
$200
Controllable Light Switches Replacement of normal light switches, enable control through UPB $100
Occupancy Sensors Detect motion or presence through a number of strategies; usually coupled with
lighting or temperature control
$75
Typical System $5,000
IT-Related Content $1,000
Source: Smart Home Designs and Bernstein estimates and analysis.

39
Exhibit 42 An Increase to 25% Penetration Would Imply a Meaningful Increase in
IT-Related Spending; But We Do Not See a Near-Term Catalyst
Potential Market Opportunity for Basic Home Automation Products, Existing Structures
Metric Value
Penetration Rate – United States 2%
No. of Households – United States (mil.) 105
Penetration Rate – Western Europe 4%
No. of Households – Western Europe (mil.) 150
Household Opportunity for 25% Penetration (mil.) 56
Average Household Spend $5,000
Opportunity for Existing Residences ($ billion) $278
IT Content ($ billion) 56
Source: Industry experts and Bernstein estimates and analysis.
Unfortunately, capturing this opportunity is likely to be difficult. Home
automation products have existed for many years, and adoption has been
very slow. The most obvious catalyst to drive both more-efficient appli-
ances and home automation is regulation, and certain countries have begun
setting standards and prohibiting products such as incandescent light
bulbs.
The second and potentially much more important catalyst would be
market-driven, and involves the dynamic pricing of energy and pricing
transparency. At present, consumers generally are not aware of the price
they pay for energy usage. Further, they are unaware of the electrical effi-
ciency of the appliances they buy. As a result, electrical appliances are pur-
chased based on features and initial cost, as opposed to lifecycle cost; and
usage is determined largely by will. These factors create a demand profile
for energy consumption, which in turn sets the upper boundary for power
companies' capacity, which build to meet peak demand (see Exhibit 43). As
a result, there is significant excess capacity during nonpeak hours.
Exhibit 43 Filling Unused Capacity Would Enable More Efficient System Usage;
Fewer New Power Plants to Meet Demand
Peak Capacity
Excess Capacity
Distribution of Daily Electricity Consumption — Illustrative
+ =
UsageIntensity
Residential
0 3 6 9 12 15 18 21
Time (24-Hour Clock)
Commercial
0 3 6 9 12 15 18 21
Time
Total
0 3 6 9 12 15 18 21
Time

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